The Revival of Tax-and-Spend Democrats?

Robert Borosage

“Embrace the suck,” Democratic House Leader Nancy Pelosi advised her caucus,telling them to vote for the lousy budget deal to get it done so Democrats can focus on job creation, infrastructure funding, immigration reform and the minimum wage hike.

With over 20 million Americans still in need of full-time jobs, inequality rising and wages stagnating, Washington should focus on good jobs and economic growth. But how do they do that?

The sensible Keynesian argument – boost spending now on infrastructure, education and other needs to put people to work – has been abandoned. Republicans continue to rail about “out-of-control spending” even as government spending and public employment have perversely been cut coming out of the recession. Led by President Obama, Democrats abandoned the effort to defend the original stimulus and have swallowed deficits as a focus, even though the deficit is coming down faster than any time since the demobilization after World War II, putting the recovery at risk.

Americans see deficits as a measure of how broken the economy is. Misleading rhetoric from both parties and the relentless campaign of the deficit hawks led by Pete Peterson and his myriad front groups have convinced Americans that reducing the deficit would help the economy. Worse, Americans aren’t even aware that the deficit is plummeting.

The lousy budget deal reflected this folly. Rather than demand that the mindless sequester cuts be repealed, Democrats agreed that any reduction should be “paid for.” The idea was to reduce short-term cuts in exchange for revenues and spending reductions that would kick in over the long term. Republicans objected to closing the tax loopholes that Democrats wanted, protecting billionaires and multinational corporations from paying a penny more in taxes. Democrats protected Social Security and Medicare and Medicaid from the cuts that Republicans wanted.

The result was a small deal that ended with, if anything, a net negative on jobs. The small reduction in sequester cuts – an estimated $23 billion in outlays in 2014 – was more than countered by the failure to renew emergency jobless benefits, which subtracted more from the economy than sequester relief added.

So how do Democrats argue for jobs now?

What is needed is a revival of “tax-and-spend Democrats.” Since the dawn of the conservative era under Ronald Reagan, tax-and-spend has been a favorite insult that conservatives slapped on any Democrat suggesting a new public program. With Americans struggling with stagnant wages and in widespread tax revolt, Democrats fled from the charge.

But the original tax-and-spend formulation came not from conservatives but from a Roosevelt aide in the Depression, Harry Hopkins who boasted that Democrats would “tax and tax and spend and spend and elect and elect.”

Democrats would be well advised to embrace the substance, if not the rhetoric, of that position.

Without action, the economy is likely to continue slow growth and slow jobs creation. Businesses may be pleased about the passage of a budget, but they lack customers, not confidence. They aren’t going to begin hiring until demand for their products picks up. Most Americans are still struggling. Expanding net exports aren’t likely to solve the problem with Europe a mess, Japan lowering its currency, and China still racking up record surpluses with the U.S. That leaves only government spending as a way out.

At the same time, our tax code is an open sore. Billionaires still pay lower tax rates than their secretaries. Multinationals like General Electric still pay nothing in taxes, shipping jobs and reporting profits abroad to avoid paying their fair share.

Democrats can turn to jobs by advocating investments in areas vital to our future and proposing to pay for them with progressive tax reforms. Launch a major program to rebuild our decrepit infrastructure and finance it by ending the deferral that allows multinationals to stash profits abroad to avoid taxes. Push funding for R&D to sustain our lead in innovation, pay for it by closing the obscene tax break for hedge fund operators. Push universal preschool and investment in education and teachers paid for by taxing income from wealth at the same rate as income from work.

Americans will support this. They know the tax code is rigged. They know that multinationals escape taxes while small businesses pay. They saw Mitt Romney with his 13 percent tax rate. They are looking for politicians with the backbone to stand on their side.

Polling by Americans for Tax Fairness demonstrated the potential. In their October poll, Americans overwhelmingly supported a range of tax hikes on the rich and corporations and wanted the money used to invest in our future as well as pay down the deficit.

By a stunning 82 percent to 9 percent, voters believed that “reforming the tax system by closing corporate loopholes and limiting deductions for the wealthy” should be used to “reduce the budget deficit and make new investments” rather than to “reduce tax rates on corporations and the wealthy.”

Voters overwhelmingly favored closing tax loopholes on multinationals, passing the Buffet rule to set a minimum tax rate on millionaires, eliminating special tax breaks for oil and gas companies and more.

And the tax-and-spend message repeatedly trounced the Republican duck-and-cut message:

By 54 percent to 41 percent, Americans favored a Democratic message that stated

“Our highest priority is to create the conditions for job creation, economic growth, and prosperity built from the middle-out, not the top down. We should replace harmful automatic spending cuts with smart, balanced deficit reduction, while making essential investments in education, job training, and infrastructure to create jobs for the American people. And we should ask the wealthy and large corporations to pay their fair share of taxes, rather than hurt our communities by cutting healthcare, education, and public safety.”

over the best Republican argument:

“The best way to get our economy growing again and create jobs is to reduce federal spending and bring down the budget deficit. We must not continue the irresponsible and unsustainable spending that has left us with a seventeen trillion dollar debt that threatens the future for our children and grandchildren. And the last thing we need is further tax hikes that will kill jobs and hurt our economy–we don’t have a deficit problem because taxes are too low, we have it because the government spends too much.”

Do Democrats have sufficient courage to make this case? That remains to be seen. One thing is clear. Americans see the country on the wrong track, with an economy that doesn’t work for them. They see Washington as a place where entrenched interests rule, and the rules are rigged. They are looking for change.

The budget deal, for all the celebration about the return to bipartisan cooperation, fails to offer that change. The Republican position holds no hope. But to survive an election with a lousy economy in the sixth year of the Obama presidency, Democrats had better start pushing now for an agenda bold enough and big enough to convince voters that change is possible if only they get rid of those standing in the way.

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